10/06/2026
Salary sacrifice has become a popular way for employees to boost pension savings while reducing National Insurance contributions.
Under the arrangement, an employee agrees to exchange part of their salary for an employer pension contribution. This can reduce National Insurance costs for both the employee and employer, while still benefiting from pension tax relief.
However, the rules are set to change from April 2029. Under the government's proposed reforms, only the first £2,000 of employee pension contributions made through salary sacrifice each year will remain exempt from National Insurance. Contributions above this amount will still receive Income Tax relief but will become subject to National Insurance.
For many people, the changes may have little impact. However, those making larger pension contributions through salary sacrifice may see a difference in the overall tax efficiency of the arrangement.
While the reforms are still several years away, they highlight how pension and tax rules can evolve over time and why it is important to understand how workplace pension schemes operate.
